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Good morning, and welcome to Sleep Country Canada's financial results conference call for the second quarter ended June 30, 2018. We will begin today's call with management's discussion, followed by a question-and-answer period open to investors and financial analysts. For your convenience, the second quarter earnings release, financial statements and management's discussion and analysis are available on the Investor Relations section of the company's website at sleepcountry.ca. They are also available on SEDAR. The results were released yesterday after market close. Please note that the remarks on this conference may contain forward-looking statements of both Sleep Country Canada's current and future plans expectations, intentions, results, levels of activity, performance, goals or achievements or any other future events or developments. Forward-looking statements are based on information currently available to management and on the investments and assumptions based on factors that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results, levels of activity, performance, achievements, future events or developments to differ materially from those expressed or implied by the forward-looking statements. As a result, Sleep Country Canada cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue reliance on these forward-looking statements. Except as may be required by law, Sleep Country Canada has no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For additional information on these assumptions and risk, please consult the cautionary statement regarding the forward-looking information contained in the company's MD&A dated August 2, 2018, available on sedar.com. I would now like to turn the conference over to Mr. Friesema. Please go ahead.
Thank you. Good morning, everyone, and thank you for being with us on our Second Quarter 2018 Conference Call. Joining me today is Robert Masson, our CFO. We are very pleased with the momentum we've seen in the first half of 2018. In Q2, we saw 8.1% growth in revenue, 13.2% EBITDA growth and just as importantly, growth in same-store sales. At 4.4%, Q2 2018 was our 20th consecutive quarter of same-store sales growth. Overall, traffic in May and June was solid, but April traffic was weak, as we had noted and has been noted by other retailers. In the quarter, we had strong growth in both mattress and accessory orders and improved in all of our KPIs, including customer conversion, mattress units, mattress unit selling price and gross margin. In Q2 2018, we also delivered on 2 key initiatives that we have discussed on previous calls. The first was to expand market share in the below $1,000 price point, and the second was to position Sleep Country with consumers as a destination where people can buy high quality, well-priced accessories. In terms of the first initiative, the 3 new SKUs in our Bloom mattress line were launched in June, which expanded our overall lower price offering. As you know, Bloom is an omnichannel offering that is available both online and in-store. The response to the new mattresses has been very good. The new Bloom mattresses played a role in our growth of mattress units. Our analysis clearly indicates that the mattresses purchased in the below $1,000 category were not being traded down from a higher price but represented new market share and expanding customer base. Secondly, becoming a destination for accessories is an important initiative because it generates increased store traffic and provides more opportunities for consumers to engage with our company and develop relationships as these items are purchased more frequently. In the quarter, we made solid progress, with accessory revenues increasing by almost 14%. This was promoted by accessory-specific infomercials we launched in the quarter and we believe also reflects success at taking advantage of Sears closing a major accessory retailer, thus gaining market share. Through marketing and new product introductions, accessories will continue to be a key component of our growth. Of course, the main component of our revenue is in mattress sales, which grew by almost 7% compared to Q2 2017. In fact, our mattress units grew at an even larger accelerated pace in 2018 over 2017. We are very pleased with this progress, especially when comparing with the financially strong previous quarter, as it comes when the overall mattress industry is seeing overall flat sales. This again is a reflection of our success in gaining market share. In the quarter, we continued to make progress growing our store count and renovating existing stores. We opened 6 new stores and completed 9 store renovations. Store renovations are important to us as the new enhanced store design has proven to drive increased same-store sales and are important in supporting our initiative to increase accessory sales. At the end of Q2, about 53% of our stores featured our enhanced store design. I will now turn the call over to Rob, who will review our financial results.
Thanks, Dave, and good morning, everyone. To begin, revenue grew by 8.1% in Q2 2018 to $143.7 million from $132.9 million in the prior year, driven by both increases in same-store sales and the addition of 14 new stores over the last 12 months. Gross profit was up by 10.3% to $41.2 million from $37.4 million in Q2 2017. Gross margin for Q2 2017 improved to 28.7% from 28.1% in the comparable quarter, primarily as a result of improvements in operating effectiveness. As a result of sales -- as a percentage of sales, this was reflected in a 20 basis point reduction in inventory and other related expenses, net of volume rebates, and a 60 basis point reduction in sales and distribution expenses. Gross profit was slightly offset by a 30 basis point increase in store occupancy costs, which was mainly driven by high utilities, property taxes and repairs and maintenance of existing stores as well as pre-opening costs and other expenses for new stores. For the second quarter of 2018, total G&A expenses increased by 9.1% or $1.6 million to $19.5 million. As a percentage of sales, G&A expenses increased marginally from 13.4% in Q2 2017 to 13.5% in Q2 2018. Contributing to a higher G&A expense is a 3.4% increase in marketing and advertising. As we've previously mentioned, advertising is a key component of our strategy to increase sales and capture greater market share. We had previously stated that we expected to incur a double-digit increase in advertising expenses in 2018, with the majority of that increase in the first half of the year. Our marketing and advertising expenses grew by 16% in the first half of 2018 compared to the first half of 2017. In working with our new advertising agency, we have been conducting extensive customer research, and we plan to incorporate the insights from this research into some new campaigns, which are expected to launch in the second half of 2018. Credit card and finance charges, which are a variable cost, increased in accordance with sales. Salaries, wages and benefits also contributed to higher G&A expenses in Q2 2018. Operating EBITDA increased by 13.2% to $22.9 million in Q2 2018, with operating EBITDA margins increasing to 15.9% of sales from 15.2% in Q2 2017. This increase was primarily due to our strong sales growth and improved gross profit margins, offset somewhat by an increase in total G&A expenses. Depreciation and amortization expenses increased from $3.3 million to $3.5 million this past quarter. The increase is mainly due to higher CapEx in the quarter from relocating 4 distribution centers and adding 14 new stores over the past 12 months. [ Financial ] expenses increased slightly in Q2 2018 to $1.1 million from $900,000 in Q2 2017. This was due to a higher effective interest rate of 3.6% on the senior secured credit facility compared to 2.9% in Q2 2017. This was partially offset by a lower average balance outstanding. During the second quarter of 2018, adjusted net income increased by 12.4% to $13.4 million or $0.36 per share compared to $11.9 million or $0.32 per share in Q2 2017. Higher operating EBITDA drove the increase, partially offset by an increased depreciation and amortization, finance-related expenses, income taxes and other expenses. Net cash flows generated by operating activities amounted to $16.1 million at June 30, 2018, compared to $27.9 million generated at June 30, 2017, with the difference largely the result of an increase in working capital year-to-date in 2018, mainly driven by lower trade and other payables, lower customer deposits, higher inventories partially offset by lower trade and other receivables. As of June 30, 2018, the balance on our revolving credit facility was $110 million compared to $105 million as of December 31, 2017. Lastly, our Board of Directors declared a dividend of $0.185 per share payable on August 30, 2018, to shareholders of record as of the close of business on August 20, 2018. That concludes my remarks. I'll now turn the call back to Dave.
Thanks, Rob. As you've heard today, we had a strong first 6 months for 2018 and established a platform for growth for the rest of 2018 and beyond. We will continue to execute on our strategy to grow our position as the preeminent mattress retailer in Canada through maintaining a strong product offering, deploying marketing and advertising to drive traffic in store and online and expanding our store count. With our expanded Bloom line, we now have one of the most extensive e-commerce mattress-in-box offerings in Canada in terms of type and price point. We also have a distinct advantage with our omnichannel approach. A mattress purchased is both tactile and personal, and we offer customers the opportunity to both shop online and also to try the mattress in person. We will also continually develop our overall mattress offering to ensure we have the products and features that customers are demanding. An example is our lifestyle-based beds, which are a growing category in Canada. We now offer a variety of lifestyle bases with different features to meet customers' specific needs. Growing this category also enhances our average unit-selling price. As I've said on previous calls, we will implement a double-digit increase in advertising this year to support the continued growth of our business. As Rob mentioned, we are working with our new advertising agency, who have completed a customer research. We will be incorporating this research into our campaigns to ensure we get the most impact from our investment. This approach is proving to be successful, increasing both mattress and accessory revenues. Maintaining a high-profile physical presence is also important to our growth strategy, and we continue to add stores. Last quarter, we revised our guidance for store openings to 15. With the year half over, we are now committing to opening 17 new stores in 2018. We will continue to be both prudent and opportunistic, however, and our future guidance remains at opening 8 to 12 new stores next year and beyond. Mall stores will be part of the mix of new stores. We currently operate 5 interior mall stores. These stores provide attractive opportunities to take advantage of the customer traffic in malls, to add visibility to our brand and support initiatives such as growing our accessory sales. We'll be flexible in our approach, and we'll look at the many favorable locations that are available to enhance our national store presence. Providing an exceptional customer service experience has always been important to Sleep Country. This has been a key component in training our associates and in developing our new store designs. We are pleased that our efforts were recently recognized by 2 separate organizations: RepTrak named us as one of the 50 most reputable brands in Canada, and we were also recognized as the most trusted retailer of mattresses by BrandSpark. We are pleased with the early progress we've made in the first half of 2018 and look forward to building on this momentum as we head into the seasonally busiest quarters of the year. This concludes our remarks. We now open the call for questions.
[Operator Instructions] Your first question today comes from the line of Martin Landry with GMP Securities.
My first question is on the traffic in April, you're saying the traffic was weak, and I think everybody understands that. Wondering if you can give us a bit more color, or if you can put some numbers to that, is there any way you can give us maybe the difference in the delta you've seen year-over-year between April and May and June so that we can actually understand the magnitude of the impact?
Well, again, traffic is slightly different as far as -- because it's not specific to individual customers. So I can't give you exact numbers on it because that might be a little misleading. What I will tell you, though, is that in April, our traffic did not meet the previous year. And we can -- we really looked at that across different regions and to which were more affected by weather and so on. And then in May and June, we went back to exceeding our last year's totals. So in a way, it was a sizable difference.
Okay. Okay, that's helpful. And you're talking about targeting the price category of below $1,000 for mattresses. Can you tell us what's your market share right now in the below $1,000 category versus what your market share in the above $1,000 category, just so we can get a sense of what is the opportunity out there for you guys to capture that lower price point market?
Well, Martin, as I know you know, I wish I could give you those answers. But the problem we have is that in our industry, which, as I say, you're fully aware of, getting specific numbers like that are very difficult and just not even available. I will tell you that we've always sold a lot of beds in the below $1,000 category. So it's not like we weren't there, but it's just an area where we weren't as strong. And so we've seen a nice increase in units in that area, and we're really happy with that. And on top of that, we're even happier with the fact that, through all that, our average unit selling price for mattresses in total went up. So that's one of the reasons why we're very confident that we're not trading people down, that we're getting new market share, and we do have room to grow in that area.
Okay. Maybe just looking at it another way, did your unit count go up faster in your below $1,000 category this quarter?
Oh, yes, it went up faster in the below $1,000 category. But it wasn't a sacrifice, we saw increases in our other categories as well, which, again, is why, even when you look at our growth in units below $1,000, our AUSP was still higher than it was last year. And again, we saw a larger growth in units in total for mattresses than we did in 2017. So our unit growth in mattress is accelerating year-over-year.
Your next question comes from the line of Matt Bank with CIBC.
Just following up on the same-store sales discussion. You have capturing market share from the recent Sears stores closures as part of your outlook. So just wondering how you're actually measuring yourself on this goal and if there are any metrics you can share?
So again, Matt, as you know, the industry does not give great feedback on it. We do know from talking to our industry that the industry is not growing this year. It's been a very sluggish year. And maybe, partly due to weather, partly due to a lot of different things. And based upon all the analysis we do, we are clearly seeing, in our mind, good growth in market share because our units, as I say, are accelerating in mattresses, and our units are accelerating quite nicely in accessories. We also look at different area stores that we have that are close to where Sears stores used to be and measuring those. And that gives us an indication -- again, not perfect, but it gives us an indication where we're seeing growth. And we would say we're seeing at least as good of growth in stores that were close to existing Sears stores than not.
Okay. And then another component of this is, just -- and I know you don't want to give anything too specific in terms of by geography, but housing has slowed this year in the GTA. And I'm just wondering if you're seeing any correlation between housing trends in any specific regions and how your same-store sales are tracking?
Yes, so as we've said in the past, housing sales are a component of our business but not as big as some people put at it. And we've been able to watch when Vancouver went through a similar effect, and Toronto's now going through it. And also on the other side, you see Montreal's housing market picking up. And so we do see some of those affects us slightly to the negative and to the good, but it is not an overall large component of the business.
Okay. And then I just want to switch gears on the last one, if that's all right. Share-based compensation was quite a bit higher this year, just wondering what drove that?
So Matt, that's really -- as we've granted awards each year, they typically vest over 3 and 4 years. And so this is just a catch-up of the lapping effect of the amortization as we now have multiple years of grants.
Okay. And how should we think about annual dilution from share-based comp to the share count?
So we do have dilution effects in our latest management information circular. So those numbers are available to you. At this point, the dilution, I think, is approximately 400,000 shares.
Your next question comes from the line of Patricia Baker with Scotiabank.
I have a number of questions, but I'm going to come back to the discussion of the April, May, June trends and the traffic. We're talking about this all in the context of traffic, and I fully understand that traffic was down. You indicated that traffic was solid in May and June. But without -- I know you won't want to give us numbers, but can you confirm that the same-store sales in May and June were far better than the same-store sales in April and far better than the 4.4 that you reported for the quarter?
Yes, absolutely.
Okay. My second question is on accessories. And at the time of the IPO, you indicated the size of that market and your aspiration to take your, what at the time was a single-digit market share, much higher. And now that Sears is out of the picture, obviously, the size of the prize for you guys is a lot larger and your ambitions on the accessories side are greater. Do you have any indication or could share with us what Sears' market share was in accessories? And then on -- related to what you said about mattress units and seeing that stores close to Sears -- you're seeing some accelerated performance. Does that apply to accessories as well, or is accessories just a more broader uptick as customers really learn that Sleep Country is in the accessories business?
So I'm going to try and answer these in order, and if I miss something, Patricia, let me know. So first and foremost, we don't know exactly what Sears' market share would have been in accessories, except to say that it was large, they sold a lot of accessories. Secondarily, I would say that we are benefiting from Sears closing. That -- our assumption is that we're benefiting from Sears closing, both in mattresses and accessories. And that we would see that in stores closer to Sears even more amplified just because it's an easier transition from their store to ours. But our accessory growth has come also from us investing in it and becoming a bigger player and through awareness. And so we had 3 infomercials that we played throughout the first half of the year at least. And talking about what we do in more detail and the reasons we do it. So it's not just about [ pricing item ], it's giving some more context to our accessory business and how they help you sleep. And we think that's just the beginning and it's going to -- not just the beginning, but we're -- we have not finished that at all. And we're going to continue to gain traction going forward. So I think it's a little of both.
Patricia, it's Rob here. Just one other thing to add to that. So we were -- one of the measurements that we're starting to do is look at how many customers come into our store and have a mattress on the order versus how many customers come in that only have accessories on their order. And we're seeing an accelerating growth of customers that only come in to buy an accessory when they come and visit us. And that -- so that's proving the point that we are -- our awareness is being raised with consumers.
No, absolutely. And I have a third question, sorry. You mentioned, Dave, that you're working with the ad agency, and you're doing some extensive customer research that's going to guide your marketing in the back half, I believe. Is this the first time that Sleep Country has really engaged in serious customer research to guide the marketing efforts?
No, it's not the first time we've done it. And generally speaking, as you know, we're onboarding a new advertising agency. So when you add onboarding new advertising agency, you spend time evaluating where your brand is today and where you want it to go and how you're going to get it there. And so it's a good opportunity to look at things again. I would say to you that we've done okay market research over our history as a company. But we're going to be doing better and more of it in the future because we think it's a real way for us to help grow our business, grow our consumers and communicate in a way that is even more effective.
Okay. And then with respect to -- you said you'd end the year with 7 mall-based stores. Would it be right to assume that, on an opportunistic basis, you will be looking at additional mall locations in the coming years?
Yes. I suppose you could call this still a little bit of a test. But the test is going very, very well, and we are looking for more stores. And I would say, we're pretty close to calling this as a really good initiative for us, and we're excited about it. So we are definitely in the market looking for different opportunities. By the way, for mall stores but also for malls outside the stores-- stores outside of malls, sorry.
Your next question comes from the line of Vishal Shreedhar with National Bank Financial.
Just on the buyback, wondering why Sleep Country has been a little bit slow over the last few quarters and how we should think about that going forward?
Well, I think that, first and foremost, we are -- we've gone through our lowest cash period of the year. We also are opening more stores than we anticipated because I think we just want to reiterate. Our -- what we want to do with our excess capital is, number one, we want to grow our business, and we continue look at ways to grow our business. And we may -- and we want to look at new stores, we want to look at new opportunities and continue to do those investigations. Secondarily, we want to pay down our debt. Thirdly, we want to -- continually, to be a company that raises our dividend. And the very last one is share buybacks. So when we have other opportunities, or when we're considering other opportunities or particularly when it's not just a strong cash flow time of year, we might not be in the market to buy back.
Okay. So is it too far for me to jump and say, management doesn't intend to use the buyback -- the rest [ of buyback ]?
No. I -- We can say to you right now that we are -- it is still there, and we still could very well use that. A lot of it is depending on what growth opportunities we have.
Okay. On marketing, switching topics here. In the release, you said that you're pushing some marketing spend into Q3, wondering if you can give us some thoughts on how marketing spend would unfold in H2?
Yes, so we -- so as we said, our marketing is going to increase double digits in the year, with the first half being heavier weighted. And that -- nothing has changed on that statement. So that's exactly what we believe. The one thing that we just want to remind everybody of -- and 2017 was a particularly good year to highlight that, of how lumpy the marketing spend could be. We continually move things back and forth, whether it be production or other expenses or other initiatives. And so the lumpiness is something that's always going to be there. But when you look at it over a longer period of time, absolutely nothing has changed in our 2018 philosophy.
Okay. I remember management, in the past -- maybe I'm remembering wrong, management said that marketing would be up double digits in H1 and then slow down in H2. And so given that you're pushing some marketing spend from Q2 to Q3, and given that Q2 marketing spend was up minimally year-over-year, just wondering if I remember that correctly and if that cadence has changed.
So our recollection would be is that we said that it was going to be double digits for the full year, which we still say it's going to be because it's -- we're continuing to invest in it. We said that it would be front-end loaded, and it has been. So we would anticipate that the second half of the year is not going to be as loaded as the front half of the year.
Okay, okay. Moving on just to the increase in the store count. I think you chatted a little bit about this already but the -- is that -- that's mainly due to these mall-based locations. Is that mainly due to these mall-based locations doing better than you anticipated? Is it real estate availability doing better -- being better than you anticipated? What's the reason of the increase? And would this represent a sustainable longer increase in terms of stores opened per year?
So I think we'll take this opportunity to just kind of recap what we've always said before, just so everybody is clear on it. We commit to opening between 8 and 12 new stores a year -- on a yearly basis. But we've always said that we have no issues opening them faster if good opportunities arise. And nothing has changed on any of that philosophy whatsoever. So when you look at 2019 and beyond, we are only going to commit between 8 and 12 because that's what we know that we can do. But we're always looking at good opportunities. And to kind of go back to the first part of your question, we continually see our new stores are opening very strongly. And so we're excited about that. So we will continue to do the same method that we've done to date, which is take the best opportunities that are out there but only commit to 8 to 12 because we're sure we can do that. Is that clear enough?
Yes, I appreciate it.
Oh, good, I just wanted to make sure because I -- we've had some people in the past say to us, "Oh, we're understanding that you're only willing to open 8 to 12," and we don't want that to be the message. The message is, we'll commit to 8 to 12, but we're always looking for good ideas. And our stores are opening very strong, so we're going to continue to look.
Okay. And just a last one here. In terms of the comp, and I'm not sure if you can provide me with this color, but are you seeing the comp mainly from the younger stores or are your older stores, say 5 years plus, are those still comping positive?
Well, the -- when we break out the comp between our new concept stores and our old concept stores, the new concept stores, for the first half of 2018, improved 150 basis points higher in same-store sales than the, call it, the legacy stores.
And then if you just -- but if you -- but just -- some of those renovated stores are also very tenured stores. So when you look across our company to now go specifically outside of renovations, we're seeing good growth in some of our oldest stores, and we're seeing good growth in our newer stores as well. So we were really pleased with the way we're continually able to grow even our stores that have been around for a long time.
Your next question comes from the line of Kenric Tyghe with Raymond James.
I wonder if we could just switch the discussion to tariff and potential tariff risks. If memory serves, it's only Tempur and Dormez are your 2 suppliers where product is shipped from the U.S., although I think Tempur does have facilities in Canada. Could you sort of speak to how you think about the potential higher threat or risk and the evolution of that? And then the second part of that could be in terms of the bed-in-a-box in some of the antidumping chatter that is coming out of the U.S. on bed-in-box-type concepts, your thoughts around that headline as well.
Sure. So first and foremost, the vast majority of our mattresses that we sell are -- they're made in Canada. And so we do have some that come in from the United States. But when you really look at it, we are expecting little to no impact on our costs in total. And frankly, even where -- if we see price increase in certain areas, we've always found that industry-wide inflation is a benefit. And so we're not worried by the tariffs at this point at all.
Great. And then just the second part of that, just on the bed-in-box and potential antidumping, et cetera. I mean, is that just noise, or do you have any thoughts around sort of the readthrough on bed-in-a-box or how it's managed to garner this level of blowback?
Well, again, I guess it'd be hard for -- or it wouldn't be good for us to give too specific of an answer on this because we're reading along with it just like you are. But generally speaking, it's -- what we're reading is -- we're not overly worried about it, but we're going to just -- we'll keep an eye on it.
And the antidumping is really just a U.S. phenomenon right now. There's been no mention of that in Canada. And when -- so we really don't -- we're not concerned -- even if it does happen in the U.S., we don't really think it's going to have any material impact on Canada.
Great, Rob. And then if I just sort of change gears a little, which is looking at something like your Tempur-Pedic summer celebration event that's been running the last couple of weeks, is that sort of something of a new normal in terms of where either you or the market or marketing is going? Because historically, that's -- you don't typically run a lot or see a lot of Tempur-type events, but of course, when you run a big Tempur-Pedic event, everybody else and their dog tries to tag along. I mean, it just seems something of change in terms of what you're going after by way of average price point or just sort of a change in go-to-market type of strategy there. Is that unique to the year, specific to a unique opportunity? Just how should we think about the whole summer celebration type of event? I don't want to sort of narrow myself too much on Tempur-Pedic specifically but on those type of events which have moved upmarket.
Well, we don't think we're doing anything particularly new. We have several -- we have had several Tempur-Pedic promotions throughout the years at different times. And we do try and keep things fresh and put new names on them. And we're trying to continually have a message that is compelling and drives people online and into our stores. But we really don't look at that as a change from what we've been doing over the last several years, whether it be with Tempur or Dormez or any of our other brands.
Well, I mean, Tempur-Pedic is a -- it is a well-recognized brand by consumers. It is a traffic driver for us, and we have successfully partnered with them for many, many years in terms of -- on the advertising front, and it does drive traffic into our stores for those consumers that are particularly interested in the Tempur-Pedic product.
Your next question comes from the line of Stephen MacLeod with BMO Capital Market (sic) BMO Capital Markets.
Just wanted to circle around here on the accessories business. I mean, it's obviously very positive to see that you're getting higher traffic, what you describe as a market increase in accessories-only customers. Can you just talk a little bit about -- do you have insights into what advertising channel is driving those customers in? And secondly, from a product perspective, is there a specific product category that these customers are tending to gravitate towards?
No, we're seeing success in most of the areas of our accessories. We're enjoying -- and part of that comes from the marketing you talked about. We're trying to layer some different messages on so people, again, raise the awareness that they know that we sell sheets. Whereas in the past, they may not have thought of us as a retailer for sheets. And so a lot of it is layering our messages so that we are letting people know what is that we're doing. And we've also been continually, over the last several years, and we're going to continue to do it, developing new products that help -- I mentioned sheets a second ago, so we want to make sure that we have sheets for every consumer, whether it be a consumer who's looking for a nice set of high-end sheets for their master bedroom, and we have wonderful bamboo sheets. And we also have other price points for what other people are looking at. So it is marketing, it's messaging, it's layering, and it's new product development. So it's many different fronts.
Right, okay. That's great. And then just secondly here, just on the ad spend. I know you've addressed kind of what the full-year expectation is and kind of weighting between first and second half. But I'm just curious, you specifically called out some being pushed from Q2 to Q3. I'm just wondering if you're able to be a bit more specific around what that number potentially looks like, just to see how much of that didn't impact Q2 but might incrementally impact Q3.
So again, it -- this kind of goes back to the conversation of lumpiness. And we just don't -- first and foremost, it was a -- we're looking at production for Q3, we're looking at -- which is our largest period of media expenses in Q3. So it's not possible for us at this point in time to say exactly what is going to shift into Q3 or possibly Q4. But again, as I say, when we sit back, we're very comfortable with the -- when you go first half, second half, we're very comfortable that we're on track to meet their -- what we talked about as well as accomplish the goals we had hoped to accomplish.
Right, okay. That makes sense. So I guess the way to think about it would be you're seeding the market the first half ahead of what could be your seasonally strong periods in Q3 and Q4.
By the way, that -- some of that is the case, but some of it is also production spend, which is not necessarily -- you don't get the benefit of the production when you're doing it, it's when the media goes out. So that's -- again, that takes us back to the conversations we've had over the time, which is the lumpiness because sometimes you incur an expense in one quarter, and you don't get the benefit until the next quarter or vice versa. And so that's why that -- I'm so -- in some ways, we're so happy that 2017 was lumpy but also turned out very well, and we're able to kind of continually talk about that as a way just so that people don't get too concerned about any one quarter. And that's also why we can't always talk exactly about what's going to happen in a given quarter. But on a yearly basis, it's a much easier way to describe that.
Right, okay. That makes sense. That's helpful. And then just finally, when you think about your store network and obviously, as Ravi pointed out, you're still seeing incrementally higher same-store sales growth from your newly renovated stores How much of your store base that you haven't renovated is kind of ripe for renovation? I mean, is there anything that would indicate that some of that store base either isn't in the right location or the wrong size to be renovated?
So I mean, we are always evaluating -- any store that we look at, we will either decide to renovate it in the new store concept, call it the full change that we've done, or we will decide to relocate that store. But we've also started putting in a lower-cost renovation for stores that may not justify the full $325,000 spend. And it's very early days, we -- I think we've done one store with that, and we're seeing really good results, even though we spent a slightly lower amount, more in the $150,000 to $200,000 range versus the $325,000. So that would be our game plan for, call it, the last 10% of stores that need to be renovated. And again, we continually look at the overall design of the store. We're now at 3.0 design, And we're starting to look at and entertain a future design. So that is always something we're continually evaluating.
And Stephen, just to add to that, I just -- was great answer, just want to put a fine point on it. Our intention is to renovate all of our stores. Whether that be -- whether we relocate it before we renovate it, which is kind of a new store or whether we do Rob's point of doing the lower cost ren at the end. As every renewal comes up, we look at the store, and we decide whether we want to renew it and how we want to do the renovation or whether we want to move it. But at the end of the day, we're seeing the results from our renovations that make us want to do all of them.
Your next question comes from the line of Sabahat Khan with RBC Capital Markets.
Just want to maybe get a little bit more color on how the e-commerce and your Bloom brand is coming along. Just an update on the progress you've seen to date and kind of what was the thought process during -- about around bringing the new brand over from Europe as well and how that's gaining traction here?
Oh, Simba. So we'll address that one at the end because it's not -- we haven't initiated that yet. But we're happy with where we're at on our e-commerce/omnichannel/Bloom rollout. We are seeing accelerating results both online and in store for accessories as well as mattresses. And we're going to continue to roll out new thinking and continue to grow on both sides of our business.
And Simba, so we announced the partnership with Simba, and we plan on launching that in, probably early Q4. But it's going well. And we're excited about that opportunity that's going to be in front of us.
All right. And then just kind of related to that, how are you seeing the, I guess, penetration of some of these bed-in-a-box brands that you're competing with? I think you said the industry overall trend aren't that good. Is that coming from the mattress manufacturers' point of view? And are the bed-in-a-box brands having any sort of impact on the -- kind of the traditional mattress industry?
Well -- So when we talk about the industry not doing well, that is by talking to our mattress brands, but it's also talking to other people as well. So it's not just the traditional mattress brands that we discuss things with, but it's a little bit more of a broad base. But I would say that we would definitely believe that the online mattress industry is growing. And we're a part of that, and we're growing as well. And we're going to continue to be a part of that. But I would not say that, that portion of the market is not growing.
Okay. And then as we kind of think about your entry into malls, can you maybe give us some color on how the economics for a mall store line up versus a traditional store, I guess, in terms of occupancy cost and maybe that being offset by, you said, potentially higher accessory sales in the stores, how do the overall economics line up between those 2 stores as you increasingly open more of those?
I mean, clearly, the occupancy costs on a per square foot basis are higher in a mall. I mean, everybody knows that. But we're seeing a much higher level of revenue activity at those locations, which makes it attractive to us. So we're also seeing much higher foot traffic in those stores as well, which means that more and more consumers are getting exposed to our brand as they come and visit us, sometimes just on an impulse basis. And the accessories are doing very well in the mall stores and so overall, I think it's a good opportunity for us. And we continue to see a lot of progress in those mall stores.
And then if we kind of look out to over the next medium to long term, I guess if those stores are performing well, do you see -- given that the mall or the landlords are seeing some vacancy in some parts of the country, do you see opportunity to maybe move some of your traditional stores into malls and maybe increase the proportion of those within your network?
I think we're going to always look at what is the best opportunity at the time. I mean, we're very excited about mall stores. And they're opening very strongly. But we're also very excited about our non-mall stores that we've been opening. And they're opening strongly as well. So at this point in time, none of us would say the malls are going to replace existing stores. But we track everything very carefully. We're -- all I can -- the one thing I can say very clearly is that we're happy with the opening of all the stores -- have been doing very strong.
Okay. Then just one last one on the marketing. I mean, as you work with your new agency, can you maybe give us some high-level direction on how you are looking at potentially changing your marketing. Is it just the type of advertising you're putting out? Is it the change in strategy? And as we look forward to 2019 and beyond, do you see the absolute level of marketing and advertising spend changing?
So I would say that we would not sit back and think there's anything broken in our company. And so we're not looking to -- we're not going to wreck and rebuild what we do. But we think that we can be clear around some of our messaging. And we can own the market because, again, we are a sleep shop, and we really want to be able to be clear and creative when it comes to talking about what the advantages of our business is, whether it be online or in store. So I think we're just going to get clearer on that. Over time, we'll continue to invest more in our marketing because it drives traffic, but we don't believe that it is something in the long run that we should look at as a deleveraging factor.
And your next question comes from the line of Meaghen Annett with TD Securities.
Just first on the gross margin. So we saw a similar dynamic in Q1, where preopening costs weighed on the margin a little bit. Is that an impact that you expect to continue, or was that just, again, a timing issue? And then just as you highlighted, Rob, you're now onto kind of the 3.0 store concept. So are you incurring any costs related to maintenance or just updating the first cohort of stores that was initially renovated?
I mean, we have an ongoing maintenance program that our team manages for all of our stores. So whether it be stores, the new concept stores that we first started in sort of early 2015, some of them may require some minimal maintenance. So that's an ongoing maintenance effort by our team. When we look at the slight deleverage we saw in the quarter, probably half of it was existing stores and half of it was related to the new and wrap stores that have opened. So we're not concerned about it. And it's just something that we continually monitor, and our team focuses on making sure that when we do renew a lease, that we're getting the absolute best deal. And because we're becoming more and more popular with the landlords, we feel we're in a very strong negotiation position.
And just secondly, going back to the SG&A and the delayed marketing spend for a moment, given the learnings you intend to incorporate into the forthcoming advertising campaigns, can you just talk to the timing of those campaigns either this year or even into next year? And just going back to your commentary, Dave, can you talk about maybe the timing difference between past campaigns and the effectiveness you've seen in those driving sales?
So I'm going to try -- Meaghen, I'm going to answer this and just let me know if I'm hitting it properly. So first and foremost, we're already incorporating the learning that we have been gaining while onboarding our new agency. So that's not new. But we're working towards even more changes. As we sit here today, though, our plan in the future is going to be a similar structure to what we currently have because we want to send certain messages, but we also want to have promotions and that -- we don't think we're walking away from that at all. But -- So timing is something that is probably not going to change a whole lot and unsure at this point in time. So we are incorporating things right now. We're going to continue to incorporate more further, and we'll have probably a nice incorporation of that in Q3 and Q4. And then we'll just continue to evaluate by doing research as we go forward.
[Operator Instructions] Your next question comes from the line of Elizabeth Johnston with Laurentian Bank Securities.
I just want to talk briefly about something you touched upon before, the performance of your new stores. In terms of the ramp-up period, have stores that you've opened this year and ramping up are performing better than stores you opened in the similar period in 2017?
I would say they are very similar. Every store is slightly different. But I would say, in 2018, 2017, 2016, we've -- over the last several years, we've continued to see our new stores opening very strong. And so I can't necessarily say it's accelerating over 2017, but it certainly is not reducing at all.
And when it comes to the mall locations, those stores, do you find the ramp-up period to be quicker? Or would you say it's on par with your traditional locations?
Yes, it's probably a little early to talk about that, and I would say, generally speaking, we're happy with the way our mall stores -- we're happy with the way our non-mall stores are opening and the way they're ramping. So I mean, again, I can't give that information at this point in time because first of all, it's still relatively early days in this. And we just opened some right at the very end of Q2. But the fact is we're happy on both fronts.
Okay, great. And just in terms of same-store sales, I want to revisit it just very briefly. Again, talking about it as a whole number rather than just traffic specifically, for April, can you give us any insight into whether or not you were comping positive in that month?
Our traffic was not positive in that month. And that was obviously affecting our incoming business, which there is a delay into delivered business a little bit. So that's why there is some shifting back and forth on that. But when you look at the quarter, it was very clear that April had a reduced and a weakened traffic that changed in May and June.
And we have no further questions in the queue at this time. I would now like to turn the call back over to the presenters.
Thank you very much. We're happy with where we're at after the first half of 2018, and we're looking forward to the second half. And this -- and we look forward to talking to you at our next meeting. Thank you.
Thank you, everyone, for attending today. This will conclude today's call, and you may now disconnect.
Thank you.